Many small forex bureau operators could merge following the review of the sector’s regulatory framework by the central bank.
The new framework, gazetted on February 22, is part of a move the regulator said would help enhance professionalism and improve practices in the foreign exchange sector.
Among other changes, the revised regulations require that bureaus increase the minimum operating capital from Rwf20 million to Rwf50 million, install modern equipment and Management Information Systems as well as hire staff with qualifications.
The new regulations also require them to automate their services as well as provisions allowing clients to transact through their accounts for the implementation of cashless policies.
Speaking to The New Times, last week, a number of operators in the City of Kigali said complying with the new regulations is quite expensive and could put them out of business.
The operators say that they are currently operating on slim profit margins and yet the regulations require them to incur additional costs.
Alphonse Murangwa, who manages a city forex bureau, told The New Times that they are uncertain of their future due to the cost of compliance.
Murangwa, who did not want his employer mentioned, estimated that full compliance with the new regulations, including the required capital, could cost them about Rwf40 million.
“To fully comply with the requirements, it will be quite costly, about Rwf40 million, which I am not sure the owners can raise at the moment considering how business has been going,” he said.
Staff members of forex bureaus are also worried as the new regulations could see them out of work.
The new regulations require that a manager of a forex bureau has at least a bachelor’s degree in accounting, finance, management or any other field with adequate knowledge on foreign exchange operations.
Managers without a degree should either have Advanced Level certificate of secondary education (A2) with five years of experience in forex bureau activities or a diploma (A1) with two years of experience in forex bureau activities, according to Article 23 of the new regulations.
However, a spot check by The New Times established that a majority of ‘manager’ title holders across the city fall short of the requirements.
Few have a degree in a finance-related field, while most with high school qualifications have no five-year experience.
In downtown bureau, Marie- Ann (not real name), a ‘manager’, said the qualifications requirement would put her out of work. However, she argues that despite not having five-year experience or a university degree, she has not had challenges or issues at work.
Some proprietors fear that the cost of hiring university graduates will further increase the cost of operations.
Possible ways out
Several proprietors are already considering merging their enterprises to pool together funds and resources to be able to meet the requirements.
Murangwa said that he is aware that small operators are in negotiations to pool together resources to remain in business.
The indefinite suspension of licensing of new forex bureaus announced last week, however, does not apply to instances of mergers, acquisitions, takeovers of existing forex bureaus.
This has led some industry players to conclude that the regulations are meant to reduce the number of players in the market but with bigger capacity.
CENTRAL BANK SPEAKS OUT
The central bank maintains that the new regulations are not meant to push any players out of business but to improve professionalism in the sector and deal with cases of money laundering. Presently, there are 92 licensed forex bureaus operating in the country.
Central bank governor John Rwangombwa explained that the recent developments are part of efforts to improve the professionalism of the sector.
“We started way back in 2012 and in the beginning of 2013 we withdrew licences from about 30 of them. We continue to work with them to have professionalism in their businesses. The new regulations will help cement what we have been doing,” Rwangombwa said.
The revision of the minimum operating capital, he said, is meant to enable them automate their services, which is not possible with the Rwf20 million previously held.
“We want them to improve on the capital so that they can be able to automate their operations which is not possible with the capital they held previously. We want them to hire qualified staff that will run their business. We want them to work as a financial institution that works on professional principles,” he said.
As to whether the requirements could push some operators out or lead to mergers, Rwangombwa said it all depends on operators.
“It will depend on the capacity of those that are already operating. It is not to force mergers. It was to create a base to professionalise the bureaus. We have set minimum standards that we would like them to operate by,” he added.
The move was also interpreted as aimed at ridding the market of speculators, who have previously been accused of hoarding dollars and other foreign currency to make abnormal profits.
By hoarding the foreign currency, money changers create shortage of dollars, consequently driving up the exchange rates.